The Ultimate Stock-Pickers is a concept we've developed at Morningstar with one simple goal: to discover European companies that some fund managers, identified by Morningstar Manager Research analysts as the best European equity stock-pickers, hold in their portfolios. With this, we aim to uncover stock ideas that investors will find useful, also providing Morningstar stock analysts ́ own views on specific companies.
Our analysts have discretionally selected fund managers who have a pure stock-picking investment style and who build investment portfolios through a high-conviction and unconstrained portfolio-construction approach.
The funds selected must have not only a positive Morningstar Analyst Rating of Gold, Silver, or Bronze, in their respective category but also usually display a Positive rating on all these Pillars -Process, Performance, and People. The final list is composed of 23 funds, but it is an evolving roster, so we will update it by incorporating new funds and removing funds.
Which UK Stocks Make the List?
Morningstar fund analysts have constructed three lists showing the buying activity of our Ultimate Stock-Pickers. The first list is what we call the Top 10 High-Conviction Stock Purchases. It concentrates on the top 10 stocks that have been bought by the managers with high conviction.
To be a high-conviction purchase, the stock must show an increase in the total number of shares during the last quarter and have a relevant weight in the portfolios. There were two UK stocks in the high conviction list, Royal Dutch Shell (RDSB) and ITV Plc (ITV).
A second list is compiled called the Top 10 Stock Purchases. It considers all the stock purchases made during the last quarter independently of their conviction score. Two UK stocks can be found on this list; British American Tobacco (BATS) and Lloyds Banking Group (LLOY).
The third list, the Top 10 New Money Stocks, focusses exclusively on the stocks that have been bought by the managers but were not present in their last quarter portfolios. Only one UK stock is on this list; Glencore (GLEN). You can find Morningstar equity analysts’ views on all five companies below.
With the BG acquisition in the books, Shell is embarking on the necessary steps to compete in a world of $60 per barrel oil. Like the rest of the integrated group, Shell is working to reduce its cost base, which has become bloated during the past five years, by reducing headcount and improving its supply chain. The integration of BG is integral to Shell’s efforts, as it holds the potential for $4.5 billion of cost-reduction synergies.
ITV Plc
ITV Plc operates a commercial television network in the UK. The Company's business segments are Broadcasting & Online and ITV Studios. It delivers content on demand through numerous platforms, both directly and via ITV Player.
British American Tobacco’s full-year results were distorted significantly by foreign exchange movements, but on an underlying basis, the company is performing very well and delivered modest upside to our top-line forecast. We will likely raise our fair value estimate slightly to account for the time value of money, but we still think the tobacco group, including British American, is overvalued. We are reiterating our wide moat rating, which was clearly evident in the second half of the year through the realisation of 6% pricing.
Lloyds is now one of the sturdiest banks in Europe. It nearly destroyed itself in 2008 with its notorious acquisition of HBOS, and the U.K. government ended up with 43.5% of the combined group. Now, after years of bailouts and setbacks, the bank has essentially righted itself, and the government has largely sold down its stake.
Glencore ranks among the most diversified of the global megaminers. But because China is the key demand driver for nearly everything Glencore digs out of the ground, diversification benefits are limited. Weaker Chinese GDP growth and the end of the investment-led economic model portend tepid demand and lower prices for most of Glencore’s industrial commodities. Glencore's oil and agriculture businesses are less China-centric but smaller in size.
